National Credit Union Administration

By Heath Tarbert and Alex Radetsky

On July 14, 2011, the Board of Governors of the Federal Reserve System (the “Federal Reserve”) and the Federal Deposit Insurance Corporation (“FDIC”) each separately issued a final rule (collectively, the “Final Rules”) implementing the repeal of the statutory prohibition on the payment of interest on demand deposits, as mandated by section 627 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”).  The Final Rules will take effect on July 21, 2011, the one-year anniversary of the passage of the Dodd-Frank Act.

Section 19(i) of the Federal Reserve Act (the “FRA”) generally provides that no bank which is a member of the Federal Reserve System “shall, directly or indirectly, by any device whatsoever, pay any interest on any deposit which is payable on demand…”  On August 29, 1933, the Federal Reserve promulgated Regulation Q in order to implement Section 19(i)3 of the FRA.  Section 627 of the Dodd-Frank Act repeals section 19(i) of the FRA in its entirety and the final rule now issued by the Federal Reserve repeals Regulation Q and any references to Regulation Q found in the Federal Reserve’s other regulations, interpretations, and commentary, each effective beginning on July 21, 2011. [click to continue…]